ARMONK, N.Y.--(BUSINESS WIRE)--
MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance
Corporation, today reported a net loss of $706.4 million, or $3.37 per
share, for the first half of 2008, compared with net income of $410.4
million, or $3.07 per share, during the same period in 2007. For the
second quarter, net income was $1.7 billion, or $7.14 per share,
compared with $211.8 million, or $1.61 per share, for the same period
of 2007. Net income in the quarter was driven primarily by unrealized
gains on insured credit derivatives, which totaled $3.3 billion on a
pre-tax basis. The majority of the unrealized gain was the result of a
substantial widening of credit default swap spreads on MBIA Insurance
Corporation during the second quarter. The Company did not materially
alter its projection of ultimate loss on mortgage-related exposures.
As a result, loss reserves had an insignificant impact on net income.
Net income was also affected by $742 million of pre-tax realized
losses resulting from the rebalancing of the asset/liability portfolio
in the Company's Asset/Liability Management (ALM) business. The $742
million in realized losses consisted of $306 million on asset sales
related to the rating downgrades of MBIA Insurance Corporation during
the second quarter and $436 million of impairments on assets sold or
that are expected to be sold in the third quarter to further enhance
liquidity in the ALM business.
After-tax operating loss, a non-GAAP measure that excludes the
effects of timing-related gains and losses (all non-GAAP measures used
herein are defined in the attached Explanation of Non-GAAP Financial
Measures), for the first half of 2008 was $339.4 million, or $1.62 per
share, compared with after-tax operating income of $408.1 million, or
$3.05 per share, for the first half of 2007. After-tax operating
income for the second quarter of 2008 was $228.9 million, or $0.96 per
share, compared with after-tax operating income of $206.9 million, or
$1.57 per share in the same period of 2007.
"While the deterioration in the housing and mortgage markets
continued over the past three months, it has been consistent with what
we projected when we established reserves and impairments for our
housing-related portfolio in the first quarter," said Jay Brown, MBIA
Chairman and Chief Executive Officer. "As such, we did not increase
our loss reserves or credit derivative impairment estimates during the
second quarter beyond our normal accretion adjustments and quarterly
loss reserving formula.
"Our biggest disappointments this quarter were the downgrades by
Standard & Poor's and Moody's, which had a significant impact on our
asset management business and our ability to write new insurance
business," Mr. Brown continued. "Our business model, however, is
functioning as it should under the current stress. The deleveraging of
our portfolio has accelerated in recent months, and our capital
position improves daily. Equally important, we expect our operating
cash flow, balance sheet strength and liquidity position to allow us
to meet our insurance obligations while also allowing us to create
value for our owners through new investments as well as stock and debt
buybacks when appropriate. I continue to expect that the rest of this
year, and perhaps next, will be bumpy until the global credit markets
stabilize, but MBIA has the resources to meet whatever challenges may
lie ahead."
Insurance Operations
During the second quarter, MBIA continued its monitoring and
analysis of housing-related exposures in order to update its estimates
for impairments and case loss reserves. Since the overall performance
of these insured credits in the second quarter was consistent with the
Company's projections, no changes were made to the Company's ultimate
expectations for losses or credit impairments. MBIA's performance
projections are based on an assumption that default and loss
experience on home mortgages continues to be elevated through mid-year
2009, and returns to a more normal pattern over the following 12
months. Observed performance in MBIA's insured portfolio and in the
broader market has been generally consistent with this expectation. As
a result, increases to loss reserves and impairments for these credits
were limited to $25 million, principally due to accretion for losses
paid out over time (reserves and impairments are determined on a
present value basis).
The Company will continue to evaluate its housing-related exposure
and may need to adjust its loss reserves and credit impairments should
deal performance not continue to track current expectations. In
addition, the Company has not yet reflected as salvage or subrogation
any potential recoveries resulting from the originators' obligations
to repurchase ineligible loans from Residential Mortgage-Backed
Securities (RMBS) transactions. The Company continues to evaluate
potential recoveries and intends to pursue them aggressively. Once the
Company has concluded its evaluation, including assessing the
likelihood and the amount of potential recoveries, it is likely to
establish salvage and subrogation receivables to partially offset the
related case loss reserves.
For the first six months of 2008, MBIA paid a total of $412.3
million in claims associated with its RMBS exposures, including $304.8
million in the second quarter of 2008. MBIA Insurance Corporation's
cash inflows in the first half of the year, largely from installment
premiums and investment income, more than covered these payments, with
the result that MBIA Insurance Corporation had operating cash flow of
$276 million in the six months ended June 30, 2008. Due to the timing
of claims over the first six months of the year, MBIA Insurance
Corporation's operating cash flow was modestly negative in the second
quarter, at $27 million.
During the quarter, the net par outstanding of the Company's
insured portfolio contracted by $23.6 billion as a result of scheduled
amortizations, refundings and early retirements of insured
obligations. During the second quarter, five insured credit derivative
contracts with aggregate notional exposure of approximately $5 billion
were terminated, with no payments made by MBIA.
For the first six months of 2008, the insurance segment's pre-tax
operating loss was $592 million, compared with $553 million of pre-tax
operating income in the same period of 2007. The reduction was largely
attributable to credit impairments and increases to loss reserves in
the first quarter, as well as interest expense on MBIA's surplus
notes. In the second quarter, pre-tax operating income for the
insurance segment was $281 million, compared to $277 million in the
second quarter of 2007. The increase, which was driven by accelerated
premium recognition on refunded exposures, was partially offset by
interest expense on MBIA's outstanding surplus notes.
Insurance Financial Strength Ratings
In June, MBIA Insurance Corporation's IFS ratings were downgraded
from Triple-A to AA and placed on CreditWatch negative by S&P and to
A2 with a Negative Outlook by Moody's Investors Service. The rating
agencies attributed their downgrades of MBIA to a number of factors,
including a diminished outlook for new business generation, reduced
financial flexibility and vulnerability to further stress in the
residential mortgage sector. Based upon S&P's and Moody's published
capital model results and adjusting for activity through June 30, the
Company estimates that MBIA Insurance Corporation's capitalization was
consistent with AAA and Aa ratings, respectively.
During the first six months of 2008, the Company estimates that
the capital position of MBIA Insurance Corporation steadily improved.
In the second quarter, the improvement was driven by a decline in
capital requirements for terminated, matured and amortized exposures,
as well as a decline in the capital required for the insurance of
investment management liabilities. The capital position improvement
was partially offset by increased capital requirements for downgraded
credits and downgraded reinsurers.
Investment Management Services
As stated in its June 20, 2008 press release, the Company expected
that it would be required to post additional eligible collateral and
fund potential termination payments under its outstanding Guaranteed
Investment Contracts (GICs) as a result of Moody's downgrade of MBIA
Insurance Corporation's IFS rating from Aaa to A2. During the second
quarter, the Company sold $4.3 billion of investments within its
asset/liability products segment in order to rebalance the asset
portfolio to meet these requirements and more closely match revised
estimated liability cash flows. A total of $306 million of pre-tax net
realized losses were incurred in the second quarter resulting from
sales of assets during the quarter. The Company had previously
recorded $294 million of unrealized losses relating to these assets in
Other Comprehensive Income (OCI), the release of which substantially
offset the impact on shareholders' equity in the second quarter. By
June 30, 2008, the Company had sufficient cash and eligible securities
to meet $7.5 billion of potential collateral or termination
requirements associated with the Moody's rating downgrade to A2.
The Company will continue to sell assets in the third quarter to
further optimize the asset/liability profile, strengthen the liquidity
of the program and to substantially eliminate the impact of any
further rating downgrades. As a result, the Company recorded
additional pre-tax net realized losses of $436 million as Other than
Temporary Impairments (OTTI) as of the end of the second quarter on
$3.2 billion in assets that have been or are expected to be sold in
the third quarter. The additional pre-tax net realized losses were
substantially offset by a $386 million reversal of OCI against these
assets. Taking into account total pre-tax realized losses of $742
million and corresponding pre-tax reductions in unrealized losses in
OCI totaling $680 million, the after-tax impact of the rebalancing
activities on shareholders' equity at June 30 was a reduction of
approximately $40 million.
In addition, the Company will receive $225 million in cash from
the termination of a total return swap related to one of the ALM
assets that has been sold, the benefit of which has already been
recognized in previous quarters, from a GAAP perspective, through
mark-to-market gains. The realized loss related to this one asset was
recognized in the second quarter. Combining the realized losses
associated with the rebalancing activity with the gain on related
hedges, the cumulative cost to the Company of the ALM portfolio
rebalancing as of the end of the second quarter was a $517 million
pre-tax economic loss, or a $336 million after-tax economic loss.
Below is a reconciliation of IMS segment realized and unrealized
losses in the quarter and the impact they had on the income statement
and balance sheet of the Company:
Net Realized Losses and Other Comprehensive Income
----------------------------------------------------------------------
$ in millions
2nd
Quarter
2008
--------
Income Statement
-------------------------------------------------------------
Net Realized (Losses)
Losses From Sales (306)
Impairments (436)
--------
Pre-tax Income Statement Effect (742)
========
Balance Sheet
-------------------------------------------------------------
Other Comprehensive Income (OCI)
OCI Reversals Related to Sales 294
OCI Reversals Related to Impairments 386
--------
Pre-tax OCI Effect 680
========
Pre-tax Combined Effect (62)
After-tax Combined Effect on Shareholders' Equity (40)
The sector composition and credit quality of the remaining ALM
assets following the sales to date is similar to that which existed at
March 31, 2008. The percentage of the portfolio in cash and government
securities increased, while the proportions of ABS and RMBS were
relatively unchanged and those of corporate, CDO and CMBS assets
declined. Average asset quality remained in the Double-A range while
the proportion of assets rated below investment grade remained
unchanged at less than 1 percent.
Average assets under management for the first six months of 2008,
including conduit assets of $3.5 billion, were $63.2 billion, down 5
percent from $66.1 billion in the first half of 2007. Ending assets
under management at June 30, 2008, including conduit assets of $3.0
billion, were $59.8 billion, down 6 percent from $63.4 billion at
March 31, 2008. The decline is primarily attributable to maturities
and terminations in the asset/liability and conduit segments. In the
Advisory Services segment, balances were stable and the segment
continued to generate new business.
In the Investment Management Services (IMS) segment, excluding
gains on debt repurchases, MBIA recorded $49.9 million in pre-tax
operating income for the six months ended June 30, 2008, compared with
$50.9 million in the same period of 2007. In the second quarter, MBIA
recorded $23.5 million of pre-tax operating income, compared with
$26.0 million in last year's second quarter, again excluding gains on
debt repurchases. The pre-tax net loss for the IMS segment was $938.1
million in the first half and $846.3 million in the second quarter, as
operating income was more than offset by realized losses and
mark-to-market losses on financial instruments and foreign exchange.
Unrealized Gain on Insured Derivatives ("Mark-to-Market")
In the second quarter of 2008, MBIA recorded a $3.3 billion
pre-tax net unrealized gain on insured credit derivatives. The table
below estimates the sources of the second quarter mark-to-market
adjustments.
Spread Credit Collateral Time to
Widening Migration Erosion Maturity
------------------------------------------
$ millions
Multi-Sector CDO (627) (364) (468) (20)
Multi-Sector CDO-squared (96) (99) (34) (3)
Commercial Real Estate/CMBS (111) (252) 7 163
Corp/Other 1,074 (6) 7 44
------------------------------------------
Total 240 (721) (488) 184
SFAS
Change 157/MBIA Reinsurer
in Credit Haircut Other Total
Libor Adj.
--------------------------------------
$ millions
Multi-Sector CDO 209 1,600 242 23 595
Multi-Sector CDO-squared 78 523 72 4 445
Commercial Real Estate/CMBS 142 811 133 156 1,049
Corp/Other 47 (47) 51 65 1,235
--------------------------------------
Total 476 2,887 498 248 3,324
As reported in the first quarter of 2008, SFAS 157 requires the
Company to adjust the fair value estimates of its insured credit
derivatives portfolio for the market's perception of its
non-performance risk. The Company has applied a discount rate based on
MBIA Insurance Corporation's CDS spread at June 30, 2008 to measure
the market's perception of the Company's non-performance risk in order
to adjust the fair value estimates of its insured credit derivatives
portfolio under SFAS 157. MBIA Insurance Corporation's CDS spreads
widened substantially during the quarter following the downgrade of
its IFS ratings by S&P and Moody's. As shown above, this adjustment
results in a change in fair value of $2.9 billion. This amount is
recalculated each quarter, and can result in substantial volatility in
the mark-to-market. If the market's perception of MBIA's credit
quality improves and MBIA Insurance Corporation's CDS spreads tighten,
the Company would record an increase to its unrealized mark-to-market
losses, all other things being equal, due to SFAS 157.
Holding Company Activities
MBIA Inc.'s liquidity position remains strong, bolstered in part
by the liquidity-enhancing rebalancing of the ALM portfolio. In
addition to the ALM portfolio assets, MBIA Inc. had approximately $1.4
billion in cash, short-term securities and other investments at June
30. Also available to the holding company if needed are regular
dividends from MBIA Insurance Corporation, which has approximately
$426 million of regular dividend capacity (although no dividends have
been paid up to MBIA Inc. thus far in 2008). In addition, MBIA Inc.
maintains an undrawn $500 million revolving credit line with a group
of highly rated banks. The Company is in compliance with all covenants
of this facility.
MBIA's Board of Directors has approved the resumption of the
Company's share repurchase program, which was initially authorized by
the Board in February 2007. The share repurchase program was suspended
in the third quarter of 2007. Approximately $340 million of authorized
capacity remains available under the program, and the Company may
repurchase shares from time to time. The Company or its subsidiaries
may also repurchase their outstanding debt instruments from time to
time.
Book Value
MBIA's Book Value per share as of June 30, 2008 was $16.67
compared with $8.70 at March 31, 2008 and $29.16 at December 31, 2007.
This change is largely due to unrealized mark-to-market adjustments on
insured credit derivatives and dilution from MBIA's February 2008
equity offering.
The Company modified its formula for calculating Adjusted Book
Value (ABV), a non-GAAP measure, to exclude the impact of unrealized
gains and losses on insured credit derivatives (except for credit
impairments). This calculation is now consistent with what the Company
had called Analytic Adjusted Book Value in the first quarter of 2008.
ABV per share, determined as set forth above, declined to $39.63 at
the end of the second quarter from $78.14 at December 31, 2007, and
from $43.63 at March 31, 2008. ABV per share declined in the second
quarter primarily due to a reduction in expected future income from
projected positive spread from the ALM business, as a result of the
rebalancing of the asset portfolio and GIC terminations.
Deferred Tax Asset
As of June 30, 2008, MBIA carried a net deferred tax asset of $1.5
billion on its balance sheet. The amount of the deferred tax asset is
driven by cumulative mark-to-market losses of $3.9 billion and
realized investment losses primarily associated with the rebalancing
of the ALM portfolio. Since capital losses, which generated a portion
of the deferred tax asset, can only be used to offset realized capital
gains, the Company has established a $199 million valuation allowance
in the second quarter against the portion of the deferred tax asset
related to realized capital losses. With respect to the balance of the
deferred tax asset, the Company believes that future expected taxable
income will be sufficient to allow it to realize the full value of the
remaining net deferred tax asset. Also, in future quarters, this
valuation allowance may increase or decrease depending on the nature
and amount of future realized capital gains and losses.
Conference Call
MBIA will host a webcast and conference call for investors today,
Friday, August 8 at 9:00 AM (EDT) to discuss its second quarter 2008
financial results and other matters relating to the Company. The
dial-in number for the call is (877) 694-4769 in the U.S. and (404)
665-9935 from outside the U.S. The conference call code is 57429200. A
live webcast of the conference call will also be accessible on
www.mbia.com.
The webcast and conference call will consist of approximately one
hour of prepared remarks followed by an open question and answer
session. Questions for the event may be submitted in advance to
ConferenceCallQuestions@mbia.com. In addition, conference call
participants will be able to ask questions during the question and
answer session.
A replay of the call will be available approximately two hours
after the completion of the call on August 8 until 5:00 p.m. on August
29 by dialing (800) 642-1687 in the U.S. or (706) 645-9291 from
outside the U.S. The replay call code is also 57429200. In addition, a
recording of the call will be available on MBIA's Web site
approximately two hours after the completion of the call.
Forward-Looking Statements
This release contains statements about future results that may
constitute "forward-looking statements" within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that these statements are not guarantees
of future performance. There are a variety of factors, many of which
are beyond MBIA's control, which affect the operations, performance,
business strategy and results and could cause its actual results to
differ materially from the expectations and objectives expressed in
any forward-looking statements. Accordingly, readers are cautioned not
to place undue reliance on forward-looking statements which speak only
as of the date they are made. MBIA does not undertake to update
forward-looking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking statements are
made. The reader should, however, consult any further disclosures MBIA
may make in its future filings of its reports on Form 10-K, Form 10-Q
and Form 8-K.
MBIA Inc., through its subsidiaries, is a financial guarantor and
provider of specialized financial services. MBIA's innovative and
cost-effective products and services meet the credit enhancement,
financial and investment needs of its public and private sector
clients, domestically and internationally. Please visit MBIA's Web
site at www.mbia.com
Explanation of Non-GAAP Financial Measures
The following are explanations of why MBIA believes that the
non-GAAP financial measures used in this press release, which serve to
supplement GAAP information, are meaningful to investors.
Operating Income (Loss): The Company believes operating income
(loss) and operating income (loss) per share are useful measurements
of performance because they measure income from operations, unaffected
by investment portfolio realized gains and losses, gains and losses on
financial instruments at fair value (with the exception of credit
impairments on insured derivatives) and foreign exchange and other
non-operating items. Operating income (loss) and operating income
(loss) per share are also provided to assist research analysts and
investors who use this information in their analysis of the Company.
Adjusted Book Value ("ABV"): The Company believes the presentation
of ABV, which includes items that are expected to be realized in
future periods and removes the uneconomic effects of the
mark-to-market of insured derivatives but includes any estimated
impairments, provides additional information that gives a
comprehensive measure of the value of the Company. Except for credit
impairments, the Company believes mark-to-market losses are not
predictive of future claims and, in the absence of further credit
impairment, the cumulative marks should reverse over the remaining
life of the insured credit derivatives. Since the Company expects
these items to affect future results and, in general, they do not
require any additional future performance obligation on the Company's
part, ABV provides an indication of the Company's value in the absence
of any new business activity. ABV is not a substitute for GAAP book
value but does provide investors with additional information when
viewed in conjunction with GAAP book value.
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------
(dollars in thousands)
June 30, 2008 December 31, 2007
------------- -----------------
Assets
--------------------------------------
Investments:
Fixed-Maturity Securities Held as
Available-For-Sale, at Fair Value
(Amortized Cost $24,392,788 and
$30,199,471) (Includes Hybrid
Financial Instruments at Fair
Value $167,485 and $596,537) $22,971,940 $29,589,098
Investments Held-To-Maturity, at
Amortized Cost (Fair Value
$4,263,442 and $5,036,465) 4,298,125 5,053,987
Investments Pledged as Collateral,
at Fair Value (Amortized Cost
$1,048,959 and $1,243,245) (2008
Includes Hybrid Financial
Instruments at Fair Value $6,075) 1,002,472 1,227,153
Short-Term Investments Held as
Available-For-Sale, at Fair Value
(Amortized Cost $7,795,771 and
$4,915,581) 7,798,529 4,915,581
Short-Term Investments Held-To-
Maturity, at Amortized Cost (Fair
Value $37,413 and $545,769) 38,167 549,127
Other Investments 633,484 730,711
------------- -----------------
Total Investments 36,742,717 42,065,657
Cash and Cash Equivalents 1,315,689 263,732
Accrued Investment Income 482,535 590,060
Deferred Acquisition Costs 408,969 472,516
Prepaid Reinsurance Premiums 295,063 318,740
Reinsurance Recoverable on Unpaid
Losses 72,556 82,041
Goodwill 79,406 79,406
Property and Equipment (Net of
Accumulated Depreciation) 101,814 104,036
Receivable for Investments Sold 2,016,492 111,130
Derivative Assets 1,793,596 1,722,696
Current Income Taxes - 142,763
Deferred Income Taxes, Net 1,480,366 1,173,658
Other Assets 550,978 288,639
------------- -----------------
Total Assets $45,340,181 $47,415,074
============= =================
Liabilities and Shareholders' Equity
--------------------------------------
Liabilities:
Deferred Premium Revenue $ 2,904,381 $ 3,107,833
Loss and Loss Adjustment Expense
Reserves 1,330,953 1,346,423
Investment Agreements 15,494,492 16,107,909
Commercial Paper 343,033 850,315
Medium-Term Notes (Includes Hybrid
Financial Instruments at Fair
Value $314,311 and $399,061) 9,739,940 12,830,777
Variable Interest Entity Floating
Rate Notes 1,325,636 1,355,792
Securities Sold Under Agreements
to Repurchase 1,007,566 1,163,899
Short-Term Debt 7,158 13,383
Long-Term Debt 2,241,063 1,225,280
Current Income Taxes 61,841 -
Deferred Fee Revenue 16,661 15,059
Payable for Investments Purchased 807,853 41,359
Derivative Liabilities 5,329,688 5,037,112
Other Liabilities 754,697 664,128
------------- -----------------
Total Liabilities 41,364,962 43,759,269
------------- -----------------
Shareholders' Equity:
Common Stock 273,315 160,245
Additional Paid-in Capital 3,053,397 1,649,511
Retained Earnings 3,595,507 4,301,880
Accumulated Other Comprehensive Loss (982,493) (490,829)
Treasury Stock (1,964,507) (1,965,002)
------------- -----------------
Total Shareholders' Equity 3,975,219 3,655,805
------------- -----------------
Total Liabilities and Shareholders'
Equity $45,340,181 $47,415,074
============= =================
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
(dollars in thousands)
Three Months Ended June 30, 2008
----------------------------------------------
Investment
Management
Insurance Services Corporate Subtotal
----------- ---------- --------- -----------
Gross Premiums
Written $ 179,388 $ - $ - $ 179,388
Ceded Premiums (29,088) - - (29,088)
----------- ---------- --------- -----------
Net Premiums
Written 150,300 - - 150,300
----------- ---------- --------- -----------
Revenues:
Premiums Earned 275,811 - - 275,811
Net Investment Income 148,068 274,458 7,707 430,233
Fees and
Reimbursements 2,568 14,299 - 16,867
Realized Gains and
Other Settlements on
Insured Derivatives - - - -
Unrealized Gains on
Insured Derivatives 3,324,313 - - 3,324,313
----------- ---------- --------- -----------
Net Change in Fair
Value of Insured
Derivatives 3,324,313 - - 3,324,313
Net Realized Gains
(Losses) 22,762 (742,026) 1,509 (717,755)
Net Gains (Losses) on
Financial
Instruments at Fair
Value and Foreign
Exchange 102,287 (193,658) 54,450 (36,921)
----------- ---------- --------- -----------
Total Revenues 3,875,809 (646,927) 63,666 3,292,548
----------- ---------- --------- -----------
Expenses:
Losses and Loss
Adjustment 22,344 - - 22,344
Amortization of
Deferred Acquisition
Costs 22,977 - - 22,977
Operating 41,034 24,112 4,877 70,023
Interest Expense 46,664 175,230 19,956 241,850
----------- ---------- --------- -----------
Total Expenses 133,019 199,342 24,833 357,194
----------- ---------- --------- -----------
Income (Loss) before
Income Taxes $3,742,790 $(846,269) $38,833 $2,935,354
=========== ========== ========= ===========
Provision for Income
Taxes
Net Income
Three Months Ended June 30, 2008
-------------------------------------------
Derivative
Eliminations Reclassification
(1) (2) Consolidated
------------- ---------------- ------------
Gross Premiums Written $(9,440) $ (41,083) $ 128,865
Ceded Premiums 1,210 8,036 (19,842)
------------- ---------------- ------------
Net Premiums Written (8,230) (33,047) 109,023
------------- ---------------- ------------
Revenues:
Premiums Earned (8,230) (34,189) 233,392
Net Investment Income 8,396 (21,348) 417,281
Fees and Reimbursements (4,131) (115) 12,621
Realized Gains and Other
Settlements on Insured
Derivatives - 34,304 34,304
Unrealized Gains on
Insured Derivatives - - 3,324,313
------------- ---------------- ------------
Net Change in Fair
Value of Insured
Derivatives - 34,304 3,358,617
Net Realized Gains
(Losses) - (101,706) (819,461)
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange - 123,706 86,785
------------- ---------------- ------------
Total Revenues (3,965) 652 3,289,235
------------- ---------------- ------------
Expenses:
Losses and Loss
Adjustment - - 22,344
Amortization of Deferred
Acquisition Costs - - 22,977
Operating (3,434) - 66,589
Interest Expense (531) 652 241,971
------------- ---------------- ------------
Total Expenses (3,965) 652 353,881
------------- ---------------- ------------
Income (Loss) before
Income Taxes $ - $ - 2,935,354
============= ================
Provision for Income Taxes 1,234,994
------------
Net Income $1,700,360
============
Three Months Ended June 30, 2007
------------------------------------------
Investment
Management
Insurance Services Corporate Subtotal
-------------------- --------- ---------
Gross Premiums Written $252,973 $ - $ - $252,973
Ceded Premiums (28,135) - - (28,135)
--------- ---------- --------- ---------
Net Premiums Written 224,838 - - 224,838
--------- ---------- --------- ---------
Revenues:
Premiums Earned 224,468 - - 224,468
Net Investment Income 142,384 381,045 7,739 531,168
Fees and Reimbursements 4,634 11,729 - 16,363
Realized Gains and Other
Settlements on Insured
Derivatives - - - -
Unrealized Losses on
Insured Derivatives (14,274) - - (14,274)
--------- ---------- --------- ---------
Net Change in Fair Value
of Insured Derivatives (14,274) - - (14,274)
Net Realized Gains
(Losses) 31,052 (6,097) (9,437) 15,518
Net Gains (Losses) on
Financial Instruments at
Fair Value and Foreign
Exchange 216 6,412 (303) 6,325
Insurance Recoveries - - 3,000 3,000
--------- ---------- --------- ---------
Total Revenues 388,480 393,089 999 782,568
--------- ---------- --------- ---------
Expenses:
Losses and Loss
Adjustment 20,968 - - 20,968
Amortization of Deferred
Acquisition Costs 17,433 - - 17,433
Operating 35,043 25,239 8,461 68,743
Interest Expense 20,711 341,514 20,182 382,407
--------- ---------- --------- ---------
Total Expenses 94,155 366,753 28,643 489,551
--------- ---------- --------- ---------
Income (Loss) before Income
Taxes $294,325 $ 26,336 $(27,644) $293,017
========= ========== ========= =========
Provision for Income Taxes
Net Income
Three Months Ended June 30, 2007
-------------------------------------------
Derivative
Eliminations Reclassification
(1) (2) Consolidated
------------- ---------------- ------------
Gross Premiums Written $(8,953) $(36,634) $207,386
Ceded Premiums 1,610 6,794 (19,731)
------------- ---------------- ------------
Net Premiums Written (7,343) (29,840) 187,655
------------- ---------------- ------------
Revenues:
Premiums Earned (7,343) (31,497) 185,628
Net Investment Income 2,727 2,567 536,462
Fees and Reimbursements (3,074) (74) 13,215
Realized Gains and Other
Settlements on Insured
Derivatives - 31,571 31,571
Unrealized Losses on
Insured Derivatives - - (14,274)
------------- ---------------- ------------
Net Change in Fair Value
of Insured Derivatives - 31,571 17,297
Net Realized Gains
(Losses) - 79 15,597
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange - (2,586) 3,739
Insurance Recoveries - - 3,000
------------- ---------------- ------------
Total Revenues (7,690) 60 774,938
------------- ---------------- ------------
Expenses:
Losses and Loss
Adjustment - - 20,968
Amortization of Deferred
Acquisition Costs - - 17,433
Operating (7,649) - 61,094
Interest Expense (41) 60 382,426
------------- ---------------- ------------
Total Expenses (7,690) 60 481,921
------------- ---------------- ------------
Income (Loss) before
Income Taxes $ - $ - 293,017
============= ================
Provision for Income Taxes 81,186
------------
Net Income $211,831
============
(1) Eliminations include:
(a) Elimination of intercompany premium income and expense.
(b) Elimination of intercompany asset management fees and expenses.
(c) Elimination of intercompany interest income and expense pertaining
to intercompany receivables and payables.
(2) Reclassification of derivative revenue and expense.
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
(dollars in thousands)
Six Months Ended June 30, 2008
---------------------------------------------
Investment
Management
Insurance Services Corporate Subtotal
---------- ---------- --------- -----------
Gross Premiums Written $ 345,459 $ - $ - $ 345,459
Ceded Premiums (56,106) - - (56,106)
---------- ---------- --------- -----------
Net Premiums Written 289,353 - - 289,353
---------- ---------- --------- -----------
Revenues:
Premiums Earned 473,221 - - 473,221
Net Investment Income 300,700 630,194 14,864 945,758
Fees and
Reimbursements 2,675 25,310 - 27,985
Realized Gains and
Other Settlements on
Insured Derivatives - - - -
Unrealized Losses on
Insured Derivatives (252,790) - - (252,790)
---------- ---------- --------- -----------
Net Change in Fair
Value of Insured
Derivatives (252,790) - - (252,790)
Net Realized Gains
(Losses) 42,114 (927,900) 868 (884,918)
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange 162,058 (139,656) 11,269 33,671
---------- ---------- --------- -----------
Total Revenues 727,978 (412,052) 27,001 342,927
---------- ---------- --------- -----------
Expenses:
Losses and Loss
Adjustment 309,952 - - 309,952
Amortization of
Deferred Acquisition
Costs 38,529 - - 38,529
Operating 87,303 40,669 12,053 140,025
Interest Expense 93,411 485,404 40,090 618,905
---------- ---------- --------- -----------
Total Expenses 529,195 526,073 52,143 1,107,411
---------- ---------- --------- -----------
Income (Loss) before
Income Taxes $ 198,783 $(938,125) $(25,142) $ (764,484)
========== ========== ========= ===========
Benefit for Income Taxes
Net Loss
Six Months Ended June 30, 2008
-------------------------------------------
Derivative
Eliminations Reclassification
(1) (2) Consolidated
------------- ---------------- ------------
Gross Premiums Written $(19,371) $ (82,511) $ 243,577
Ceded Premiums 2,514 16,300 (37,292)
------------- ---------------- ------------
Net Premiums Written (16,857) (66,211) 206,285
------------- ---------------- ------------
Revenues:
Premiums Earned (16,857) (67,656) 388,708
Net Investment Income 13,810 (27,383) 932,185
Fees and Reimbursements (7,506) (406) 20,073
Realized Gains and Other
Settlements on Insured
Derivatives - 68,062 68,062
Unrealized Losses on
Insured Derivatives - - (252,790)
------------- ---------------- ------------
Net Change in Fair
Value of Insured
Derivatives - 68,062 (184,728)
Net Realized Gains
(Losses) - (101,552) (986,470)
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange - 129,676 163,347
------------- ---------------- ------------
Total Revenues (10,553) 741 333,115
------------- ---------------- ------------
Expenses:
Losses and Loss
Adjustment - - 309,952
Amortization of Deferred
Acquisition Costs - - 38,529
Operating (9,948) - 130,077
Interest Expense (605) 741 619,041
------------- ---------------- ------------
Total Expenses (10,553) 741 1,097,599
------------- ---------------- ------------
Income (Loss) before
Income Taxes $ - $ - (764,484)
============= ================
Benefit for Income Taxes (58,111)
------------
Net Loss $ (706,373)
============
Six Months Ended June 30, 2007
--------------------------------------------
Investment
Management
Insurance Services Corporate Subtotal
--------- ---------- ---------------------
Gross Premiums Written $476,236 $ - $ - $ 476,236
Ceded Premiums (51,213) - - (51,213)
--------- ---------- --------- -----------
Net Premiums Written 425,023 - - 425,023
--------- ---------- --------- -----------
Revenues:
Premiums Earned 438,894 - - 438,894
Net Investment Income 284,562 732,514 13,729 1,030,805
Fees and Reimbursements 14,802 24,855 - 39,657
Realized Gains and
Other Settlements on
Insured Derivatives - - - -
Unrealized Losses on
Insured Derivatives (16,066) - - (16,066)
--------- ---------- --------- -----------
Net Change in Fair
Value of Insured
Derivatives (16,066) - - (16,066)
Net Realized Gains
(Losses) 32,044 4,024 (8,495) 27,573
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange 3,855 (11,617) (166) (7,928)
Insurance Recoveries - - 6,400 6,400
--------- ---------- --------- -----------
Total Revenues 758,091 749,776 11,468 1,519,335
--------- ---------- --------- -----------
Expenses:
Losses and Loss
Adjustment 41,452 - - 41,452
Amortization of
Deferred Acquisition
Costs 34,062 - - 34,062
Operating 67,612 50,418 16,916 134,946
Interest Expense 42,447 656,009 40,361 738,817
--------- ---------- --------- -----------
Total Expenses 185,573 706,427 57,277 949,277
--------- ---------- --------- -----------
Income (Loss) before
Income Taxes $572,518 $ 43,349 $(45,809) $ 570,058
========= ========== ========= ===========
Provision for Income
Taxes
Net Income
Six Months Ended June 30, 2007
-------------------------------------------
Derivative
Eliminations Reclassification
(1) (2) Consolidated
------------- ---------------- ------------
Gross Premiums Written $(17,884) $(62,792) $ 395,560
Ceded Premiums 3,319 11,291 (36,603)
------------- ---------------- ------------
Net Premiums Written (14,565) (51,501) 358,957
------------- ---------------- ------------
Revenues:
Premiums Earned (14,565) (52,510) 371,819
Net Investment Income 7,475 9,131 1,047,411
Fees and Reimbursements (6,172) (213) 33,272
Realized Gains and Other
Settlements on Insured
Derivatives - 52,723 52,723
Unrealized Losses on
Insured Derivatives - - (16,066)
------------- ---------------- ------------
Net Change in Fair
Value of Insured
Derivatives - 52,723 36,657
Net Realized Gains
(Losses) - 1,926 29,499
Net Gains (Losses) on
Financial Instruments
at Fair Value and
Foreign Exchange - (12,250) (20,178)
Insurance Recoveries - - 6,400
------------- ---------------- ------------
Total Revenues (13,262) (1,193) 1,504,880
------------- ---------------- ------------
Expenses:
Losses and Loss
Adjustment - - 41,452
Amortization of Deferred
Acquisition Costs - - 34,062
Operating (13,141) - 121,805
Interest Expense (121) (1,193) 737,503
------------- ---------------- ------------
Total Expenses (13,262) (1,193) 934,822
------------- ---------------- ------------
Income (Loss) before
Income Taxes $ - $ - 570,058
============= ================
Provision for Income Taxes 159,616
------------
Net Income $ 410,442
============
(1) Eliminations include:
(a) Elimination of intercompany premium income and expense.
(b) Elimination of intercompany asset management fees and expenses.
(c) Elimination of intercompany interest income and expense
pertaining to intercompany receivables and payables.
(2) Reclassification of derivative revenue and expense.
MBIA INC. AND SUBSIDIARIES
Reconciliation of Adjusted Direct Premiums to Gross Premiums
Written(1)
----------------------------------------------------------------------
(dollars in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Adjusted Direct
Premiums (2) $29.8 $447.4 $73.3 $720.3
Adjusted Assumed
Premiums 0.0 0.0 0.0 0.0
------------ ------------ ------------ ------------
Adjusted Gross
Premiums 29.8 447.4 73.3 720.3
Present Value of
Estimated
Future
Installment
Premiums (3) (3.4) (347.1) (23.3) (528.5)
------------ ------------ ------------ ------------
Gross Upfront
Premiums Written 26.4 100.3 50.0 191.8
Gross
Installment
Premiums
Written 153.0 152.7 295.5 284.4
------------ ------------ ------------ ------------
Gross Premiums
Written $179.4 $253.0 $345.5 $476.2
============ ============ ============ ============
(1) The amounts consist of Financial Guarantee premiums and Insured
Derivative premiums.
(2) A non-GAAP measure.
(3) At June 30, 2008 and March 31, 2008 the discount rate was 4.67%
and 4.98%, respectively, and at June 30, 2007 and March 31, 2007 the
discount rate was 5.13% and 5.10%, respectively.
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
Net Income (Loss)
per Common Share: 2008 2007 2008 2007
------------------ ------------ ------------ ------------ ------------
Basic $7.25 $1.66 ($3.37) $3.17
Diluted $7.14 $1.61 ($3.37) $3.07
Weighted-Average
Number of Common
Shares
Outstanding:
Basic 234,638,186 127,386,668 209,673,573 129,667,141
Diluted 238,152,768 131,460,764 209,673,573 133,785,874
Components of Net
Income (Loss) per
Diluted Share (1)
------------------
Net Income (Loss) $7.14 $1.61 ($3.37) $3.07
Unrealized Gains
(Losses) on
Insured
Derivatives Net
of Credit
Impairments (2) 9.11 (0.07) 1.82 (0.08)
Net Realized
Gains (Losses) (3.07) 0.08 (4.01) 0.14
Net Gains
(Losses) on
Financial
Instruments at
Fair Value and
Foreign
Exchange (3) 0.41 0.03 0.68 (0.05)
Gains on Debt
Repurchases (4) 0.18 - 0.25 -
Tax Adjustment (0.44) - (0.49) -
------------ ------------ ------------ ------------
Operating Income
(Loss) (5) $0.96 $1.57 ($1.62) $3.05
============ ============ ============ ============
(1) May not add due to rounding.
(2) Pre-tax credit impairments related to insured credit derivatives
for the three and six months ended June 30, 2008 were $12.8 million
and $839.8 million, respectively.
(3) Excludes $22.0 million and $28.1 million of pre-tax income for the
three and six months ended June 30, 2008 and $2.5 million and $10.3
million of pre-tax expense for the three and six months ended June
30, 2007, related to economic hedges.
(4) Represents the discretionary repurchases of medium-term notes at
discounts made at request of the note holders.
(5) A non-GAAP measure.
MBIA INC. AND SUBSIDIARIES
Components of Adjusted Book Value per Share
----------------------------------------------------------------------
June 30, 2008 December 31, 2007
----------------- -------------------
Book Value $ 16.67 $ 29.16
After-tax Value of:
Deferred Premium Revenue (1) 8.00 16.27
Prepaid Reinsurance Premiums
(1) (0.82) (1.69)
Deferred Acquisition Costs (1.11) (2.45)
------ ------
Net Deferred Premium Revenue 6.07 12.13
Present Value of Installment
Premiums (1) (2) 6.97 13.68
Asset/Liability Products
Adjustment 3.88 8.78
Loss Provision (3) (1.71) (3.39)
Cumulative Unrealized Gains
(Losses) on Insured
Derivatives Net of Credit
Impairments 7.75 17.78
----------- -------------
Adjusted Book Value (4) $ 39.63 $ 78.14
=========== =============
(1) The amounts consist of Financial Guarantee premiums and Insured
Derivative premiums.
(2) At June 30, 2008 and December 31, 2007 the discount rate was 4.67%
and 5.06%, respectively.
(3) The loss provision is calculated by applying 14.5% to the
following items (excluding premiums related to derivatives) on an
after-tax basis: (a) deferred premium revenue; (b) prepaid
reinsurance premiums; and, (c) the present value of installment
premiums.
(4) A non-GAAP measure.
CONSOLIDATED INSURANCE OPERATIONS
Selected Financial Data Computed on a Statutory Basis
----------------------------------------------------------------------
(dollars in millions)
June 30, December 31,
2008 2007
----------- -------------
Capital and Surplus $ 4,260.7 $ 3,663.1
Contingency Reserve 2,858.6 2,718.9
----------- -------------
Capital Base 7,119.3 6,382.0
Unearned Premium Reserve 3,609.2 3,762.8
Present Value of Installment
Premiums (1) 2,555.9 2,638.6
----------- -------------
Premium Resources (2) 6,165.1 6,401.4
Loss and Loss Adjustment Expense
Reserves 1,866.4 926.1
Soft Capital Credit Facilities 850.0 850.0
----------- -------------
Total Claims-paying Resources $ 16,000.8 $ 14,559.5
=========== =============
Net Debt Service Outstanding $969,396.2 $1,021,925.2
Capital Ratio (3) 136:1 160:1
Claims-paying Ratio (4) 70:1 83:1
(1) At June 30, 2008 and December 31, 2007 the discount rate was 4.67%
and 5.06%, respectively.
(2) The amounts consist of Financial Guarantee premiums and Insured
Derivative premiums.
(3) Net debt service outstanding divided by the capital base.
(4) Net debt service outstanding divided by the sum of the capital
base, unearned premium reserve (after-tax), present value of
installment premiums (after-tax), loss and loss adjustment expense
reserves and soft capital credit facilities.
Source: MBIA Inc.
Contact: MBIA
Media:
Kevin Brown, +1-914-765-3648
or
Elizabeth James, +1-914-765-3889
or
Investor Relations:
Greg Diamond, +1-914-765-3190
or
APCO Worldwide
Media:
Jim McCarthy +1-202-333-8810